New Securities and Exchange Commission (SEC) rules requiring stockbrokers and securities dealers to disclose the beneficial owners of stocks under their purview has been criticized by the Philippine Stock Exchange (PSE) chief.
“The way it [implementing rules and regulations (IRR) issued last year]has been constructed is defective,” said Hans Sicat, PSE president and chief executive officer.
“I am not talking about it from a regulator’s perspective, because from a regulator’s perspective, if you were to put this into practice, then I can find that all the listed companies at the PSE cannot define the beneficial and nth beneficial owner [of their stocks],” Sicat said.
He said the “beneficial ownership” disclosure requirement was a “complex” issue defined in a “very simplistic manner” by the SEC, making compliance “close to impossible.” The country’s capital markets, he added, are no longer operating in the same way as they were several decades ago wherein it was easy to pinpoint who owned interests in companies..
“The issue, if you look at it not just from a market operator’s perspective, if you look at it from a mutual fund, a bank and all that . . . [for]the requirement of a beneficial ownership the nth level is close to impossible to actually find out,” Sicat said.
“In the old model where there is only one retail [individual]investor calling up a broker it is very easy to say that it is Hans Sicat who owns that. I can disclose that,” he explained.
At present, the speed at which trading is conducted and structured, and how portfolios are continually adjusted, makes it difficult to determine final stock ownership, he said.
“In today’s world wherein global capital markets operate, many funds buy into many institutions and trade on a day to day basis … in many cases … when you look at the trades, it is not just the fund [that is the beneficial owner], sometimes a fund will buy into another fund and you will trade [in]several layers,” he explained
Insisting on the beneficial ownership disclosure rule will put the capital markets in an “odd” situation, Sicat said, as corporations unable to determine stock ownership face legal sanctions.
“It becomes a criminal liability of the issuers, who by the way do not have any control about who owns that [particular stock]. . . it is gonna be an odd situation,” he said.
“I will let PASBDI (Philippine Association of Securities Brokers and Dealers Inc.) discuss their own issue, they clearly have their own issue … It is just strange that SEC pushing on this, the way that the whole issue is not the optimal view,” Sicat added.
PABSDI, the umbrella organization of brokers and dealers, last month was able to secure a restraining order against certain provisions of the 2015 IRR of the Securities Regulations Code (SRC).
SEC Chairperson Teresita Herbosa, for her part, said regulators were only exercising their powers and complying with a Supreme Court directive when they issued the revised IRR.
Herbosa cited Section 2 of the SRC, which states, among others, that “the State shall ensure full and fair disclosure about securities.” Section 18, meanwhile provides that “any person who acquires directly or indirectly the beneficial ownership of more than 5 percent of certain equity shall report the true identity and citizenship of said owners to the Commission.”
Finally, in a landmark 2011 decision involving a question over the sale of a stake in Philippine Long Distance Telephone Co., the Supreme Court expressly ordered the SEC to look into the beneficial ownership of corporations and ensure compliance with a 40 percent limit on foreign ownership of a public utility.